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Surfing for internet winners
By Rob Griffin
Few people doubt that the internet is going to play an increasingly important role in our lives and the Lincoln Internet Tollkeeper Trust is designed to benefit from this trend.
The £2.71 million portfolio, which is managed by Goldman Sachs, was set up at the height of the technology boom in April 2000 to invest in growth businesses that provide access, content, infrastructure and services for the internet.
Concentrating on companies that are earning money, such as Apple, has proved to be a winning formula, says Jonathan George, a senior investment analyst at Lincoln who oversees the running of the portfolio. "When we launched, there weren't many companies with much revenue generating capability," he recalls. "We decided to concentrate on what Goldman Sachs called the internet tollkeepers: those that were picking up money each time a site was used."
To be considered for a berth in the 35-stock fund, a prospective company needs either to have a solid brand franchise or to demonstrate an ability to generate cash. High barriers to entry will also be an advantage.
The household names among its 10 largest holdings illustrate the point: Microsoft, Apple, Google and Cisco Systems all have prominent positions, as well as stocks such as BlackBerry-maker, Research In Motion.
The fund's holdings are predominantly US-based, although many of them generate a sizeable proportion of their revenues from around the globe, such as Microsoft.
The annual turnover of the fund is between 40% and 50%.
"Stocks are bought for the long term, with the research looking at a company's suppliers, customers and competitors," says George. "Due to the rigorous selection process, it is unlikely a stock will be sold very quickly."
When the value of a holding that the fund believes has good long-term prospects goes up, it will look to trim the position, with the proceeds being invested in a company where the risk-reward profile is more attractive.
"If a new technology comes up which undermines the company's barrier to entry then this could be a reason to sell," George explains. "However, turnover is predominantly driven by cash-flow requirements rather than by the manager changing direction."
The investment horizon of the fund, meanwhile, is comparatively short at between three and five years. "It's very difficult to extrapolate further because you don't know what's going to happen in terms of technology," explains George.
While still focused on the growth of the internet, the fund has recently moved away from pure internet companies to embrace areas such as gaming.
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